Cabinet proposes amendment to merger thresholds

By Camaron Kao / Staff reporter

Mon, Dec 24, 2012 - Page 14

A proposed amendment to the Fair Trade Act (公平交易法) that will use revenue rather than market share as a merger threshold is a move in accordance with global trends, but the government might consider establishing different revenue thresholds for different industries, analysts said.

In an amendment the Cabinet submitted to the legislature on Dec. 6, the Fair Trade Commission (FTC) suggested removing market share as a review threshold for mergers and buyouts. If the amendment is passed by lawmakers, company revenues will be the only threshold with which companies are obligatory to file applications for mergers or buyouts.

Policy and Regulatory Report (PaRR), an intelligence and analytical news service that focuses on competition law around the world, said most countries are moving toward revenue threshold, instead of market share.

“Revenue threshold is a clearer guidance for companies, unlike market share,” Joy Shaw, regulatory correspondent for PaRR, told the Taipei Times by telephone on Thursday.

“Companies often define the market in different ways than the government does. As a result companies and the government often have different ideas about the market share these companies have,” Shaw said.

Shaw said most governments maintain the same standards for revenue thresholds for companies in all industries, but such universal revenue thresholds might fail to capture major players in small markets, whose revenues might be low, she added.

“It is possible for a company to have a small revenue, but a big market share in a niche market, [which] is an area that may provide a loophole for companies to escape from merger filing requirements,” Shaw said.

Thus, another criterion — whether the merged entity has the power to affect consumers and the market — is used by some countries to regulate such company, she said.

Karel Cool, professor of strategic management at the European Institute of Business Administration, wrote in an article in August that among the US, EU and emerging markets such as Brazil, Russia, India and China, only Russia retains a merger review filing threshold in terms of market share.

“Russia has thresholds defined in revenues, assets and market share to be sure to catch all mergers that in their eyes are to be reviewed,” he wrote.

Brazil abolished market share as a merger review filing threshold in May, replacing it with the regulation that involves either the combined sales of the buyer and seller group, or any entity in the deal, Cool said.

In the US, in addition to revenue threshold, the authorities also use asset levels to keeps an eye on buyers’ share of voting rights, he added.

Former FTC commissioner Shih Jun-ji (施俊吉) said that the government could either set the merger threshold in terms of revenue or market share, but the threshold must be effective in catching all major players and the government must establish different revenue thresholds for companies in different industries.

“It makes no sense for the government to set the same revenue threshold for multinational banks and street vendors,” Shih said.